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U.K. Economy Faces Brexit Uncertainty, Treasury Chief Says

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November 20, 2016

By Nicholas Winning

LONDON--The U.K. economy faces uncertainty as it negotiates its withdrawal from the European Union so the government must protect any gains but also invest in infrastructure to be prepared for any opportunities or challenges once it has left the bloc, Treasury chief Philip Hammond said on Sunday.

The Chancellor of the Exchequer is due to unveil the Autumn Statement on Wednesday, the government's--and Mr. Hammond's--first major fiscal-policy announcement and economic update since Britons voted to leave the EU in June, a move that many predicted would damage Britain's economy.

The Treasury has said Mr. Hammond will set out a new fiscal framework to give the government flexibility to respond to changing economic conditions and the need to invest in the economy's productive capacity.

In an interview with the British Broadcasting Corp., Mr. Hammond said forecasts were pointing to a slowing of economic growth next year and a "sharp challenge" for the public finances.

"We have got to make sure what we do is responsible--that everything we do is compatible with building resilience in our economy--as we go into a period when there will be some uncertainty around the negotiation over our exit from the EU, and focus on making sure our economy is match-fit for the opportunities and the challenges that will lie ahead," he said.

Concerns over Brexit's impact have weakened sterling and raised fears that companies will stop investing or move their operations out of the U.K. if it doesn't strike a favorable deal on its future ties to the bloc. And although the latest official data show the U.K. economy grew a stronger-than-expected 0.5% in the third quarter compared with the second, an annualized rate of 2%; economists caution that a slowdown may still lie ahead due to the planned exit.

U.K. Prime Minister Theresa May has resisted mounting pressure to outline her Brexit strategy arguing that it would undermine her bargaining position in the looming negotiations. She said on Friday that the government's timetable remains on track to begin the formal Brexit process by the end of March.

Mr. Hammond said he understood the desire for more information about the process but said he wanted the prime minister to have maximum flexibility when she enters negotiations.

He also said European leaders were being commendably disciplined in their statements on free movement and European market access.

"We trade huge amounts together, and I'm confident that we will be able to agree an arrangement with our European partners that ensures that our companies will continueto trade in and have access to European market places," Mr. Hammond said.

The Chancellor said maintaining European market access for the U.K.'s large financial sector would be a key demand in the negotiations but stressed it was also of deep value to Europe, adding that negotiations had to find a "win-win outcome."

On Sunday, in an article in The Telegraph newspaper, 60 lawmakers from Mrs. May's Conservative party, including seven former ministers, called for the government to pull out of the European single market and customs union when it leaves the EU.

"I would urge my colleagues to give the prime minister the flexibility she needs to get the best deal for Britain in what will be a very complex negotiation," Mr. Hammond said, adding that no decision had been taken on staying in the customs union.